Question 1b
Your manager has received a letter from Jodie in connection with her proposed emigration from the UK. Extracts from the letter and from an email from your manager are set out below.
Extract from the letter from Jodie
My unincorporated business
I prepared accounts to 31 December every year until 31 December 2014. I then ceased trading on 31 May 2015. I made a tax adjusted trading loss in my final period of trading of £18,000. I was unable to sell my business as a going concern due to the decline in its profitability. Accordingly, on 31 May 2015 I sold my business premises for £190,000. I paid £135,000 for these premises on 1 June 2002. I also sold various items of computer equipment, which I had used in my business, for a total of £2,000. This equipment cost me a total of £5,000. I retained the remaining inventory, valued at £3,500, for my own personal use.
My taxable income for the last five tax years is set out below. There is no property income in the 2015/16 tax year because I sold my rental property in May 2014.
| 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | |
|---|---|---|---|---|---|
| £ | £ | £ | £ | £ | |
| Trading income | 64,000 | 67,000 | 2,000 | 3,000 | Nil |
| Property income | 15,000 | 13,000 | 14,000 | 2,500 | Nil |
| Bank interest | 2,000 | 2,000 | 3,000 | 3,500 | 8,000(est.) |
--- Jodie has overlap profits from the commencement of her business of £6,500.
Extract from an email from your manager
Additional information
Please prepare paragraphs for inclusion in a letter from me to Jodie addressing the following issues.
(b) Relief available in respect of the trading loss
Calculate the income tax relief which Jodie would obtain if she were to claim terminal loss relief in respect of her trading loss. You should not consider any other ways in which the loss could be relieved. There is no need to calculate Jodie's tax liabilities for each of the years concerned; just calculate the tax which will be saved due to the offset of the loss and explain how you have determined this figure. .
Tax manager
Required: Prepare the paragraphs for inclusion in a letter from your manager to Jodie as requested in the email from your manager.
The following marks are available:
(b) Relief available in respect of the trading loss. (8 marks)